Government Contracting

Government Contracting NANA and Government Contracting Questions are being raised in the national media and by some congressmen over a federal program...
Author: Brett Bond
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Government Contracting NANA and Government Contracting Questions are being raised in the national media and by some congressmen over a federal program that allows companies owned by Native Americans to do negotiated bids on major contracts with federal agencies. We have prepared this briefing paper to explain the program and answer some of the questions under discussion. NANA Regional Corporation along with other Alaska Native regional and village corporations have formed companies under Section 8(a) of the Small Business Administration act. Many of these companies are very successful and several have “graduated” from the program and now compete in the market without any special consideration from the government. A General Accountability Office (GAO) study of the program is currently underway and due to be complete by mid-2006. We expect the GAO study to show that the program is cost-effective for the government and meets the goals of the government’s efforts to involve Native Americans, including Alaska Natives and Native Hawaiians, in government contracting activity. We believe criticisms of the program are coming from public employee unions who worry about the government’s contracting out for services, mainstream government contractors who fear losing a portion of their business, and from interest groups who resent the success of the Native American companies.

About NANA NANA Regional Corporation, Inc. is the Alaska Native regional corporation for Northwest Alaska. It was formed in 1972 following congressional enactment of the Alaska Native Claims Settlement Act of 1971. The settlement act resolved long-standing aboriginal claims on lands in Alaska, lifting a legal cloud on land title in Alaska and clearing the way for construction of the Trans-Alaska oil pipeline, which now supplies 20 percent of the nation’s domestic oil production. Since NANA was formed it has followed a strategy of partnering with competent companies, large and small, in selected business areas. Here are some examples:

• In 1975 NANA formed an alliance with a major catering and camp services company serving the North Slope oil fields. This partnership has been very successful and continues today, three decades later. It has been expanded to serve other major clients and into a series of separate investments in hotels. • In 1978 NANA formed a partnership with a major mining company to develop a large zinc and lead mineral deposit in Northwest Alaska, on lands conveyed to the corporation by the claims settlement act. Today the Red Dog Mine is the world’s largest zinc mine. NANA played a crucial role in getting state and federal support for the 1

Government Contracting

NANA’s recent initiative to perform government contracting services through 8(a) corporations is an effort by the corporation to diversify, develop expertise in new areas, and create opportunities for shareholders to gain skills and experience.

Frequently Asked Questions What do NANA’s 8(a) companies do?

project, without which the lands holding the mineral deposit would have been included in a national park. Today the mine is a major employer in small villages in the region and several NANA companies and joint-ventures play support roles for the mine. • In 1989 NANA joined several other Native corporations in a partnership with BP to bid on leases in a state oil and gas lease sale on the North Slope. The bids were successful and a major oil field was discovered. NANA still holds a small minority interest in the Endicott oil field. • In the years since 2000 NANA has formed strategic partnerships with companies in the process, mechanical and civil engineering fields. Today NANA’s companies are heavily engaged in commercial and major industrial engineering projects in Alaska. Through these partnerships we expect to be involved in construction of a planned $20 billion natural gas pipeline in Alaska. This will be the world’s largest private construction project 2

NANA has several 8(a) companies which perform a wide variety of services for the government, from administration to operations support, procurement, communications and high-tech information services.

How many Alaska Native 8(a) companies are there?

In total there are about 250, although the number of successful 8(a)s is much smaller. Many Alaska Native corporations, including NANA, own several 8(a) companies. Each of the 8(a) companies specializes in a certain area, although many are also flexible in the type of tasks they perform.

Are our customers satisfied?

The ultimate test of the program’s success is that our customers, the federal agencies we work for, are pleased with work we have done and keep coming back to us. Once a contract is awarded, we are treated like any other company. Some of our companies have now “graduated” from the program and compete fully on the open market, which is the goal of the program.

Government Contracting

What is the program? Who does it benefit?

Is the “no-bid” nature of these contracts fair?

Basically, since 1952 the federal government has granted special privileges to businesses owned by disadvantaged minorities, including blacks, Hispanics and Native Americans. Federal agencies are required by law to do a certain amount of their business with firms owned by disadvantaged people.

The program allows disadvantaged firms to negotiate contracts with the government rather than go through a competitive bidding process. We believe it is fair partly because it is difficult for small firms just starting to compete with large, long-established federal contractors. The purpose of the program is to give disadvantaged companies a “leg up” in the competition. After a period in the program they must stand on their own and compete. Several former 8(a) firms are doing just that.

For many years there was a limit of $3 million of the contract amounts for these companies. In recent years the limits on the size of the contracts were lifted for Native American firms, however. That was because a program designed for a small business owned by a family or individual never worked well for Native American groups, including Alaska Natives and Native Hawaiians. These Native American corporations have hundreds or thousands of members or shareholders, most of them low-income. NANA has 11,000 shareholders, many of them children.

Are there limits to the 8(a) programs?

Yes. An 8(a) company can retain that status for only nine years. They are also graduated from the program when certain income thresholds are met. These thresholds vary depending on the business the particular company is in. There are also interim goals to be reached. In the sixth through ninth year, an increasing percentage of their revenues must be from outside the 8(a) program. Two of the NANA 8(a) companies have graduated for most purposes.

Aren’t negotiated contracts common?

Yes they are. Two thirds of Department of Defense contracting is done through negotiations with one company and only a third is done through competitive bidding. Most of the Defense negotiated contracts are done through a handful of very large defense contractors. It is interesting that there is little criticism of negotiated contracts with these large firms, but there is criticism of similar contracting with small Native American firms.

Are there advantages for the government in negotiated contracts?

Yes, and there are disadvantages to competitive bidding, at least the way it is done under federal procurement rules. Negotiated bids allow the government agency and the contractor to lay out all the requirements of the contract for a full and open discussion. There are no surprises later on. An important point is that all of the information about the contractor’s 3

Government Contracting

Is the ability to quickly mobilize a contractor important?

Yes it is. One example is that after the 2001 terrorist attacks in New York some federal agencies needed more secure space. They were told it would take three years through the normal procurement process. Native American firms, working through negotiated contracts, were able to move quickly and get the agencies adequately housed in six months. proposal, including the profit margin, are known to the government. The result is a better relationship between customer and contractor, and a more efficient result. In competitive bid situations there is usually not the opportunity to fully lay out all the information, which can lead to differing expectations, change orders, and often higher costs.

Is the 8(a) business profitable?

Most 8(a) contracts involve intense negotiation between our companies and the government. These negotiations result in profit margins that are consistent with other businesses. After all expenses are paid, our 8(a) companies produce net income that is in line with our other businesses.

Isn’t a negotiated contract quicker to accomplish?

Usually it is. Our overall federal procurement system is broken and badly needs a fix. In competitive bidding the losers often appeal the agency’s decision on a winning bid and the process can take a very long time to reach a final conclusion. With a negotiated contract there is no appeal. Both sides reach agreement and work begins. 4

Some critics say Native American corporations don’t have the expertise to carry out these large contracts.

When a project requires additional resources we will partner with other companies, including large corporations. This was NANA’s practice long before it entered the 8(a) contract business. 8(a) rules require that we perform more than 50% of the work. Regardless of the partner our goals are the same: Delivering top-quality products and services and insuring that our shareholders share in the benefits of the work.

Is the program reaching its goals?

The goal is to allow Native Americans, who live in remote, poverty-stricken areas, to participate in the American economy, and we think it is the most successful program of its type that SBA has done. Until recent years few Native Americans were able to really take advantage of the government’s minority programs. Now many Native Americans are receiving dividends and jobs through these contracting opportunities. In 2002 Alaska Native corporations paid dividends to 92,000 Alaska Native shareholders.

Government Contracting

Chickasaw Nation Industries, whollyowned by the Chickasaw nation, earned profits benefiting its 38,000 tribal members.

Why are Alaska Native corporations more active in 8(a) contracting than Native Americans in the Lower 48?

There are several very large and successful 8(a) companies operated by Lower 48 tribes, but the answer is mostly that tribes outside Alaska have focused on developing casinos and similar ventures on tribal lands. Casinos are illegal in Alaska, so this avenue for economic development is not available to the Alaskan groups. What’s also important is that the Alaska Native groups have established business corporations with management staffs, accounting, and business systems. This makes it simpler for the government to work with the Alaskan-owned companies.

shareholders but not as many as NANA’s larger partnerships, such as its camp services, mining and mine support activity, which are close to home. What’s probably more important are that talented young NANA shareholders work as management interns, gaining experience in different fields and earning money for their education. NANA’s real payoff is in development of its human resources, its people.

What benefits does federal contracting bring to the shareholders of Alaska Native corporations?

In 2003 Alaska Native corporations paid $18 million in shareholder dividends attributable to federal contracting. In 2004 dividends increased to $27 million. The vast majority of these shareholders are low-income, living in small rural villages with few jobs. The activities of the 8(a) corporations create opportunities for young shareholders, too. From 1999 to 2004, Alaska Native corporations doing 8(a) contracting awarded $14 million in scholarships. In 2004, 2,084 shareholders were employed in jobs related to government contracts. Within NANA, the 8(a) corporations employ some 5